UK Faces Personal Debt As Millions Struggle To Pay Rent Or Mortgage

tensed woman with expense...
tensed woman with expense...

Millions of families are on the brink of financial collapse, a worrying new report has shown.

Many do not have enough money to cover their rent or mortgage for more than a month, while thousands are being made homeless every year because they are unable to meet their payments, new research has shown.

Poor people are bearing the brunt of a "perfect storm" of rising living costs, falling real wages, low savings and expensive credit that has seen unsecured consumer debt almost triple in the last 20 years, reaching nearly £160 billion.

Rising personal debt has become a "significant problem" for people in Britain, with millions of families left struggling, the study by the Centre for Social Justice (CSJ) said - with the average household debt now standing at £54,000, nearly twice the level of a decade ago.

More than 26,000 UK households were accepted by councils as homeless in the last five years because of rent and mortgage arrears, including more than 5,000 last year, the think-tank said.

Former work and pensions minister Chris Pond, who chaired the report, said that with falling real incomes and increasing costs of basic essentials, many - especially the most vulnerable - are sliding further into problem debt.

"The costs to those affected, in stress and mental disorders, relationship breakdown and hardship is immense. But so too is the cost to the nation, measured in lost employment and productivity and in an increased burden on public services."

The report, called Maxed Out, said households in the poorest 10% of the country have average debts more than four times their annual income, with their average debt repayments amounting to nearly half their gross monthly income.

Despite signs of a national economic recovery, the CSJ found personal debt in the UK remains close to its all-time high of £1.4 trillion, while average household debt now stands at £54,000 - nearly twice the level of a decade ago.

There are now fears the number of households being made homeless will increase in the coming years should interest rates rise, the CSJ warned.

The Bank of England has said it will only consider raising rates when unemployment falls from its current 7.6% rate to 7%.

The report concludes: "Rising personal debt levels represent a significant problem for people in Britain.

"While most personal debt is healthy and manageable, such as an affordable mortgage, student loan or low-interest credit card used to bridge income gaps, for many people their debt has become unhealthy and unmanageable.

"While people of all income levels can end up seeking debt advice or declaring bankruptcy, the problem of debt seems to be more of an issue for low-income and vulnerable households.

"A perfect storm of rising living costs, decreasing real wages, low savings and expensive credit seems to have pushed many to the edge and over a financial cliff edge."

CSJ director Christian Guy said years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape.

"Problem debt can have a corrosive impact on people and families. Our report shows how it can wreak havoc on mental health, relationships and wellbeing," he warned.

"Across the UK people are up until the early hours worrying about their finances and bills."

"Some of the poorest people in Britain are cut off from mainstream banking and have no choice now but to turn to loan sharks and high-cost lenders."

Essential bills have increased by 25% since 2007, with one in six payday loans now used to pay for an outstanding household bill, the study found.

The market for short-term high-cost credit from companies such as payday lenders is now worth £4.8 billion a year, it said.

Payday lenders have increased business from £900 million in 2008/09 to just over £2 billion - around eight million loans - in 2011/12, according to the CSJ.